How does the new stimulus package affect the PPP Program?

by | Dec 24, 2020 | Cracking the Tax Code with Christy | 0 comments

Congress overwhelmingly passed a comprehensive COVID-19 relief bill Monday night.  Of most interest to me, was how they addressed the Paycheck Protection Program.  President Trump still has to sign the bill.

Below are the key features of the legislation related to the Paycheck Protection Program:

1.  Deductibility of Business Expenses

 First, the legislation ensures that your business expenses paid with forgiven PPP loans will be tax deductible.   This means that an exception to the typical rules for forgiven loans apply, and you can deduct the rent, utility, and payroll expenses you paid with loan funds as ordinary and necessary business expenses like you would normally.  This supersedes IRS guidance.  I’ve been watching and hoping for this legislation since the IRS issued its first guidance last spring.

2. New Applications

The Paycheck Protection Program has also been infused with $284 billion for first and second PPP loans.  Businesses that did not apply in the first round can now apply for a loan.  Businesses facing extraordinary losses in revenue can apply for a second loan. 

3. Second Loans 

As the pandemic drags on, I hear many clients state that the PPP was helpful but they won’t last until the end of the pandemic without more help.  The new legislation addresses those concerns.  To qualify for a second PPP loan, businesses must show they have: (1) 300 or fewer employees, (2) used up the full amount of their first loan, and (3) a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.

4. $2 Million Cap

All PPP loans in this second round of funding are capped at $2 million.  This is substantially lower than the initial round of PPP loans which allowed businesses to ask for loans of up to $10 million. 

5. Help for the Hospitality Industry 

Local restrictions on travel, gathering and capacity have hit the hotel and restaurant particularly hard.  While most borrowers can receive only 2.5 times their average monthly payroll costs, hotels and restaurants can request 3.5 times their average monthly payroll costs.  These businesses must have NAICS codes that start with 72.  The $2 million cap still applies.

6. EIDL Restrictions Repealed

This is good news for PPP borrowers who took advantage of both programs.  EIDL advances no longer have to be deducted from loan forgiveness amounts. 

7. Simplified Applications for Smaller Loans 

As many of you know already, and I can attest, there is nothing simple about the current PPP loan forgiveness application.  The process should get simpler for those that borrowed less than $150,000. The SBA has 24 days to create a simplified application form limited to one page for those borrowers.  Stay tuned for more information.  Please give Law Offices of Christy Lee, P.C. a call if you have questions concerning the new legislation.  Our focus, as always, is to help your business succeed.